Milavetz, Gallop & Milavetz, P.A. v. United States (2010)

An example of debt relief advertising. Photo by Robert Couse-Baker via Creative Commons BY 2.0

In this decision, 559 U.S. 229 (2010), the U.S. Supreme Court upheld provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) that required attorneys representing individuals in bankruptcy to not advise clients to incur more debt and to disclose certain statements.The Court unanimously decided that these requirements do not violate the First Amendment.

BAPCPA imposes limitations on debt relief agencies. These include not advising clients to incur more debt in anticipation of filing bankruptcy.Other provisions required debt relief agencies to disclose in their advertisements that the services are with respect to bankruptcy relief and to identify themselves as debt relief agencies.

The Milavetz law firm challenged these provisions in federal court on First Amendment grounds.They first argued that attorneys are not debt relief agencies under the statute.They then argued that the provisions violated their free-speech rights by prohibiting them from giving certain advice or unconstitutionally compelling them to engage in certain speech.

A federal district court determined that the statutory term “debt relief agency” does not include attorneys and invalidated two of the challenged provisions.The Eighth U.S. Circuit Court of Appeals determined that attorneys were debt relief agencies, striking down the no advice provision on incurring further debt, and upholding the disclosure requirements.

On further appeal, the U.S. Supreme Court unanimously determined that attorneys were debt relief agencies and upheld all of the challenged provisions. On the advice provision, Justice Sonia Sotomayor, writing for the Court, determined that the provision applied only to speech that would encourage abuse prefiling conduct in the bankruptcy system.She concluded the provision “prohibits a debt relief agency only from advising a debtor to incur more debt because the debtor is filing for bankruptcy, rather than for a valid purpose.” She also found that the provision was clear and not vague.

Regarding the disclosure requirements, Sotomayor reasoned that such requirements only had to be “reasonably related” to the government’s interest in preventing consumer deception – a standard articulated by the Court in Zauderer v. Office of Disciplinary Counsel (1985). She reasoned that the disclosure provisions were intended to combat misleading commercial ads, such as the promise of debt relief without any reference to possibly filing bankruptcy.

Justices Antonin Scalia and Clarence Thomas authored short concurring opinions.Scalia questioned the inclusion of a footnote in the majority opinion that dealt with legislative history.Thomas concurred but indicated that he would be “willing to reexamine Zauderer and its progeny in an appropriate case to determine whether these precedents provide sufficient First Amendment protections against government-mandated disclosures.”